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Comments and Response to Ofwat Future Price Limits – Statement of Principles MWH water sector director, Richard Ratcliff looks at the new challenges water companies now have to address as a result of PR14.
What are the key challenges and what will they mean?
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1. Greater customer focus and engagement
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To deliver sustainable results for customers, the environment and investors, companies will need to address customer’s wants and needs rather simply meet Ofwat set regulatory targets. This means companies will have to engage with customers not just about their willingness to pay for services but to enable them to have a greater say in the development of business plans. Customer Challenge Groups (CCG) are being used as the vehicle to create greater engagement and enhance the legitimacy of business plans. How customers are engaged, informed and their influence demonstrated in plans represents a significant challenge to any company.
2. Define outcomes not outputs A move to customer focused outcomes rather than simply delivering outputs will help companies plan investment beyond the current five-year price control period. However, this presents challenges in terms of how companies will measure and monitor their progress in delivering outcomes. In order to drive effective long-term planning, incentives will need to be established to recognise and reward performance in a sustainable way. Over delivering or outperformance against outcomes are not likely to be rewarded.
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3. Drive Innovation Long-term incentives will afford companies more freedom to innovate. The five-year AMP cycle has been seen by some as a constraint, favouring incremental innovation rather than the step-change innovation companies’ need to meet their future efficiency challenges. Companies must embrace innovation and realise value from both the supply chain and their own R&D activities and recognise this value in their future business plans.
4. Separate wholesale and retail activities Companies must now account for their activities on a wholesale and retail basis. This is a tried and tested approach in other utility sectors but currently the asset-intensive ‘wholesale’ network and treatment businesses comprise 95% of the water and sewerage value chain. So it’s not surprising that the water companies’ focus is on this aspect of the business. Having to create a separate retail control will ensure they focus just as keenly on their customers. In stating its principles, Ofwat says it will apply greater incentives targeted at companies’ retail activities, but wholesale and retail are not mutually exclusive. A greater downstream, customer focus will drive upstream efficiency challenges on wholesale activities. Although there is still a need for greater clarity of how this will all work, customers should see benefits whether they continue to have little choice of retailer or in a contestable market. This will require changes to company licences. Ofwat
has seen a resistance to changes in licences and has extended the consultation period with companies on this matter. It recognises that current uncertainties present challenges to long-term investment and business planning.
5. Move to a total expenditure approach – Totex As part of wholesale control, it is the intention to move to a total expenditure approach – Totex. Capex (Capital expenditure) and Opex (Operating Expenditure) will be treated together to equalise the incentives between the two using a menu approach. This is similar to the CIS (Capital Incentive Scheme) applied to Capex in the last price review. This approach offers companies more choice in level of risk and performance and will also create better incentives for them to reveal accurately their investment needs in their business plans. However this mechanism still needs to be defined. It is likely some elements will be adopted for the next price review, but it may be that some aspects will be phased in over time.
a water resource deficit when compared with the cost of developing a new resource.
The future pricing principles also recognise the importance of ensuring companies have incentives to manage water resources in sustainable way. Increasing resilience through more water transfers offers companies more flexibility to meet short-term deficits.
Other incentives to water resource trading being considered are:
Addressing Totex may also encourage companies to trade water as option to water resource management, by removing bias towards Capex solutions. A Totex approach may make purchasing water a more efficient option for companies with
Stronger obligations on the companies to consider imports when planning how they will manage resources through the water resource management planning process.
Deregulating bulk water trading; Increased returns for water importers and exporters of water across company boundaries;
This next price review presents some significant challenges and opportunities to water companies and the supply chain. Customer engagement and innovation will be real differentiators to the outcome determinations. Incentives to drive companies to achieve their outcomes must be clearly defined and drive the right behaviours. Learning from previous AMPs must be realised if Ofwat is to regulate without constraining companies for the long-term benefit of its customers, the environment and industry. Â
"A move to customer focused outcomes rather than simply delivering outputs will help companies plan investment beyond the current five-year price control period"
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6. Improve water resource management through water trading
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OFWAT
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‘White Paper Rafting’ Authors: Simon Talbot, associate director Sherna Bhadresa, consultant Contact: simontalbot@egremontgroup.com & shernabhadresa@egremontgroup.com. Telephone for both is: 020 7298 7878
For more information please visit www.egremontgroup.com
To avoid any ‘thrills’ and ‘spills’ that could potentially result from the proposed reforms in the ‘Water for Life’ White Paper, Water companies need to understand the implications and take action now. The seemingly benign piece of potential legislation contains hazards that could at best destabilise incumbents, but may cause some to capsize completely. With most companies currently in the throes of PR14 planning this is an issue that needs consideration now in order to secure the investment required to deliver their competition strategy.
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By definition, the extension of competition is disruptive innovation. It is designed to force change and transformation through new market forces, placing greater pressure on suppliers from customers and new entrants thus creating a more innovative, competitive industry. However there are still many questions which need answering to establish the ‘retail’ implications of competition. For example:
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n How will the whole issue of metering and billing data be controlled? n How to ‘unblock’ the bulk of profit opportunity in the market which is in upstream (estimated at £2bn) rather than retail trading (estimated at £200m)? n Will the government be brave enough to deconstruct combined licences and allow real upstream competition through modular licences for all players in the market?
The rapids ahead Increased competition for nonhousehold customers The government wants to promote competition in relation to water and sewerage. Evidence suggests that the retail services market for business customers will be opened up to greater competition during AMP6, with evidence strongly pointing towards 2017. The White Paper increased the number of non household customers eligible to switch suppliers by about 24 000, according to the Draft Water Bill, by reducing the water consumption threshold from
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those that use over 50million litres per year to those using over 5million litres. The future Water Bill will abolish this threshold, opening up the market to all non-household customers. This significantly changes the market for contestable business leading to huge implications in terms of the complexity of supply, service offers and increased pressure for value added services. Customer insight is paramount; understanding who the key customer segments are, how to attract and retain them, what value proposition they seek from their water retailer and how they want to pay. Core commercial skills will be required that may not be immediately available or apparent within incumbents.
Increased Licence options The reforms include the unbundling of the combined Water Supply Licence, currently the only option available for a new entrant wanting to provide upstream water supply services. The Water Bill will ‘unbundle’ the current combined licence and introduce a number of licences, giving the opportunity for a new entrant to specialise. Under this latest scheme, a new entrant would be able to provide upstream water services, without being obliged to provide the retail services as well. The Bill will also allow those with their own water resources to access water companies’ infrastructure, including treatment and storage systems, allowing other suppliers to input water into any part of the network. The same approach is proposed for sewerage licences. Incumbents will need to understand the threats and opportunities presented by
the new license arrangements and prepare accordingly, assessing the skills, systems and processes required, as well as promoting a corporate culture throughout the organisation, compliant with a competitive regime.
Bulk Water Trading The White Paper sets out the Government’s plan for resources to be used more flexibly and efficiently, by increasing network interconnections. Regulatory incentives will be introduced by Ofwat, to make water trading more attractive and a model contract for bulk supplies will be developed. Ofwat estimates that increased interconnections could lead to a £1bn welfare gain. This is more than just a means of moving water from those with a surplus to those with a shortage – this could play a significant role when evaluating capital schemes particularly when close to borders with neighbouring water wholesalers. Such an evaluation will require a more commercial approach to understanding costs and profit opportunity to deliver the right long term investment choices in AMP6. Water companies should formulate their response and start to take action, or risk facing a number of issues during the next AMP, when the changes are due to come into effect. In order to pay for the organisation transformation, an estimate of the cost will need to be included in the PR14 submission, where business planning is already underway. How are you going to play in these new markets? Will you be a pioneer or a take a more cautious approach? What are the implications for your organisation? How much
will it cost? What are the risks? Will there be fundamental changes to how you structure your business?
One boat or two? The White Paper states that a separation of the retail and wholesale function is not going to be a legal requirement, ‘We have decided not to introduce fundamental structural change to the industry such as requiring legal separation of water companies’ retail functions.’ Nonetheless, some believe a separation of the retail and wholesale business is the best and ‘safest’ way forward. Under Competition Law the Wholesaler is obliged to treat all retail businesses as equal, including its own retail arm. It cannot give its retail business any
The Water Industry in England should take heed from the lessons from Scotland, where Scottish Water separated the business retail activities into a wholly owned subsidiary, Business Stream. The retail arm serves the non-household customers and competes with other water retailers. Scottish Water, the Wholesaler, deals with all licensed retailers in the market however large or small in a consistent manner. In the absence of legal separation, Scottish Water stresses the importance of ‘adequate governance’ between these entities to allow fair access to new entrants. The alternative to separation therefore is rigid compliance to Chinese walls within a single legal entity – possible, but complex and difficult to manage, and therefore open to accusations of anticompetitive behaviour. Another argument for some form of separation
is that there may be distinctly different models required for the Wholesale and the Retail businesses requiring differences in people skills, attitudes and leadership styles, not to mention new processes and changes to technology. These different operating models may make uncomfortable bedfellows and is likely to involve a substantial amount of time and resource to get right depending on the approach adopted. So in order to successfully navigate the White Paper and emerge unscathed on the other side, it is necessary to understand all the potential hazards along the way. Some of them may be obvious and avoidable, some may appear to be small and insignificant, and others may only become apparent after the market starts working. The key message is to start planning now and ensure a safe passage into AMP6 and a steady future. n The Egremont Group is a management consultancy specialising in transformational change. Recent clients include Severn Trent Water and the Kelda Group and you can hear members of their executive teams speaking about their experiences of working in partnership with Egremont to transform their organisations here: www.egremontgroup.com/our_clients/ client_testimonials.html
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preferential treatment which could give them a competitive advantage, such as preferential price discrimination, sharing of scale economies, sharing information from other retailers or offering services at less than the market rate. By remaining as a single entity, an organisation leaves itself open to accusations of anti-competitive behaviour, a charge which carries a maximum penalty of up to 10% of their annual turnover.
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An AMP Cycle, but not as we know it… For any UK water utility CEO expecting the next AMP cycle to be similar to the last one, a surprise is in store. Powerful external forces are bearing down on the sector that will inevitably have a significant impact. James Dunning, Chief Executive, Syrinix explains. Take your pick, but be they witches pulled from Macbeth, or Dementors from the world of Harry Potter, powerful forces are at play in the UK water sector. For CEOs, as to which of “foul and fair” wins out come 2014 remains to be seen. But for those who assume business as usual, a surprise is brewing with public confidence and a sense of “what’s done cannot be undone” at its core.
Triple Challenges It does not take much peering into the swirling fogs to identify three trends likely to weigh heavily on the next AMP cycle.
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First, for those who have not yet realised, is that if the current UK Parliament runs its full course, the next UK General Election will be held within six weeks of the start of the next AMP period. So if anyone is expecting support for significant increases in customer billing, whether to “enhance” their regulatory asset base or otherwise, they are going to be disappointed.
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So then, no expectation of network resilience improvements either, given the funding faucet is being closed? Far from it. “More from less” will be the challenge in an environment of frugality and post-banking crisis recovery. Secondly, the UK drought of 2012 may have been washed away by the deluges that followed, but its imprint remains. “Water companies being let off leakage targets” declared the Telegraph. “Water firms banning hosepipes lose 300m gallons a day in leaks” lamented the Daily Mail. The result? In a context where leakage levels have not substantially reduced in the last ten years despite vast improvements in technology, leakage is firmly back on the agenda. Last but by no means least, the politicians are watching the sector. If public confidence is lost then they will be rolling up their sleeves and, for better or worse (depending on your viewpoint), wading into the detail of how the sector is structured and operated. If you doubt that is the case, you have only to look at the UK energy sector that finds itself battered amidst the turbulent publictribulations of Government. Consider too the accelerating woes swirling around the BBC
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amidst the lamentable Jimmy Savile scandal(s). Put simply, if public confidence is lost in a key sector then politicians will react – that is after all their job. The problem, of course, is that that reaction brings with it a host of other, often uncontrollable, factors too. So there is the challenge. Less leakage and bursts, for greater public confidence, for less cash whilst keeping your investors happy… otherwise you will get the politicians paying a visit to provide “some protection”. Cue witches/ Dementors stage right…
Bursts, Leaks and Public Confidence At the Water UK Leakage Conference 2012, held in Coventry in October, a simple question was asked: “Does leakage matter?”. The answers provided by the UK Government agencies were particularly clear. “Leakage is a waste of energy and a waste of reputation”. “Customers expect utilities to save water and if the utilities don’t then they [the customers] won’t either”. Perhaps most importantly from the regulatory perspective, it was also noted, pretty bluntly, that increases in resources for utilities will not be allowed unless utility plans “include demand management and leakage as the first port of call”. Indeed, a number of speakers, including those from Government agencies, recommended that a “public communications” session be added to the conference in future years. Why? Because water utilities will only get the quiet, low risk, life that their investors crave if the public has confidence in them; and if customers are seeing major bursts and leakage whilst their bills go up and their hosepipes are banned then their confidence in the effectiveness of the sector will follow that spilt water down the drain. Add in that OFWAT was criticised heavily in the media for doing nothing about reducing leakage for ten years and it is easy to see where this is heading. Both OFWAT and the Government will be looking to redress that position over the next AMP period. Get that wrong, lose public confidence along the way, and, as noted, the politicians will be happy to step in…there is an election to be fought after all.
Show me the money In previous AMP periods, significant increases in customer water bills have been justified as necessary for bringing water infrastructure up to standard. Those were the days! If the current economic context is accepted as the worst for more than 50 years then it is equally true to say that preparations for AMP 6 are similarly being undertaken in a whole new context. With an increasing number of utilities also now owned and/or financed by investors with a love of low risk vanilla returns on their investments, things could get interesting. Who after all is going to defend increases in customer bills in a context of swingeing cuts that are, whether you agree with the conclusion or not, viewed as caused by the investment community? OFWAT and/or the politicians? No. The water utility CEOs? Well they can try but seldom will the headline writers have had it so easy.
The regulatory context But all is certainly not lost for the utility sector with OFWAT ostensibly opening the window onto a considerably altered regulatory context. To date, the value of capital expenditure comprising “an enhancement” has been added to the value of utility regulated asset bases on a non-depreciating basis. The result? Well, while some would dispute it, OFWAT’s view is that this has resulted in a bias towards capital works as that work consequently increases the return the water utilities are able to make, courtesy of their customers, from their expenditure – so increasing the aforementioned low-risk regular returns so beloved of many major investors in the sector. Whether that is right or wrong, few would meanwhile dispute the difficulties of establishing innovation in the water sector in the UK. From the utilities’ viewpoint, as highlighted in the recent HM Treasury report on smoothing the investment cycle in the sector, the uncertainties of relatively short regulatory cycles render the risks simply too high for any innovation without
SYRINIX Syrinix’s TrunkMinder Critical (ADSL) installed on London trunk mains
But change is in the air. The OpEx/CapEx divide, and the CapEx bias that is claimed to have accompanied it, is being torn up to be replaced with the all-conquering TotEx. As importantly, detailed outputs-based regulation (the previous AMP period resulted in 9000+ pages of business plans) is being replaced with broader outcome-based regulation with the outperformers able to keep the benefits. Quite what the detail of these reforms will be remains to be seen. Undoubtedly the risk remains of these ostensibly sweeping reforms degenerating into the detailed micromanagement of yore. If these proposed reforms can be implemented effectively, however, the changes will be farreaching. No longer will the ideal solution for a water utility be to “enhance” a leaking/bursting pipeline by replacing it wholesale, adding the considerable costs, courtesy of customers, to the regulated asset base and milking the return on that investment in perpetuity. Instead, the rewards will favour those who improve the operation and resilience of that same pipeline with the lower cost solution of replacing only
Squaring the Circle At face value the challenges facing water utility CEO’s going into the next AMP cycle are insurmountable. Little, if any, scope exists for increasing customer bills whilst improvements in network resilience are near the top of the regulatory agenda with drastic consequences should public confidence be lost. Indeed, does the technology even exist to square that circle, to improve resilience and reduce bursts and leaks for less cost? Yes it does – and this is the critical point, as it is technology that is the key to CEOs overcoming these challenges. Because the sector is ten years further along the technology road from when leakage levels were last reviewed with companies like Syrinix and i2o leading the way. New, proven, technologies are now on the market with sub-3 year paybacks that enable utilities to reduce leakage levels and automatically monitor for and avoid high-profile highly disruptive bursts without incurring the vast expense of pipeline replacement programmes. It is the utility sector that has not kept pace and now a framework is taking shape that will support that gap between technology development and deployment being closed. Can the circle be squared? Yes it can.
cycle. Financial constraints, potential political interference and customer confidence are at one and the same time swirling around the industry as it plots its way forward. Leakage generally and, more specifically, high profile bursts in critical locations have come to be key levers in the maintenance of public confidence in the sector. Meanwhile, reducing leakage and avoiding major bursts by replacing pipelines is no longer an option except in the most extreme instances. From the viewpoint of the water utility CEO’s, the challenge and opportunity is to embrace innovation as a means of aspiring to greater network resilience without increasing customer bills. From OFWAT’s viewpoint meanwhile, alongside the measures already taken, the pressure is on to allow these same utilities to experiment not just with the upside benefits of being able to retain the benefits as outperformers but without the risk of public humiliation should some outcomes prove not quite as timely and effective as anticipated. Innovation will, after all, encompass risk and that risk needs to be shared.
So foul and fair a day I have not seen…
The challenge has been laid down for the industry to aspire. The obligation now lies with the CEOs and OFWAT to transform that aspiration into a reality with innovation at the heart of the route forward. If they can get that right, the witches and Dementors will remain in their fictional worlds with consumers delighting in their lack of concern about the water sector as they sip their cup of tea.
The water sector is facing considerable challenges going into the AMP 6 price review
James Dunning Chief Executive, Syrinix
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From the innovators’ viewpoint meanwhile, a ten year adoption cycle by utilities is roughly seven years longer than most innovators have cash for – hardly the basis for a vibrant innovative supply chain.
those sections in the worst condition whilst monitoring the rest.
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a sub-3 year payback period. There is also the perceived risk that if the utilities experiment and fail, OFWAT will simply ignore those efforts for the greater good and nonetheless not just penalise them but lead the media assault on their brands too.
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SELWOOD
Selwood’s high head pump launch continues Selwood is in the process of designing a brand new range of high head pumps and the new H150 has successfully completed extensive pre-production field trials and is now available for sale and hire. S100, S150 and S200 super silent pumps and the D80, D100 and D150 super silent units in a close coupled configuration is one of the latest examples of this development programme. An awareness of future engine emission requirements is a key part of its ongoing development programme and the advantages of this improved arrangement are reduced noise, reduced vibration, longer coupling life plus ease of maintenance and production.
The new pump is ideal for high head dewatering in quarrying and mining as well as pipeline pressure testing and cleaning, water boosting and temporary fire protection in markets such as construction, oil and gas, marine and water and waste water. “We are very excited about launching this H150 high head pump” says Mark Page, Selwood’s Sales & Manufacturing Director. “The new
H150 offers dramatically improved hydraulic efficiency, flow and head capacities and suction characteristics. Selwood has committed to designing and manufacturing a range of world class high head pumps and the H150 is a key pump within the range. All of our pumps are designed and built in the UK using British suppliers and we are very pleased to be able to export quality British products around the world”. The new H100 high head pump was launched at Hillhead 2010 and has been a success in both the UK and export markets. The new H200 is currently completing rig tests with field trials starting later this year and the H80 and H125 are being designed for launch in the spring of 2013.
Selwood has been designing, manufacturing, hiring and selling pumps for 60 years and is the leading Pump Hirer in the UK. Around 75% of Selwood’s pump units are now exported from the UK and sold through a worldwide distributor network.
All Selwood ‘H’ pumps are available as diesel driven super silent or open set configurations with electric motor options also available.
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The Selwood H150 is a heavy duty automatic self priming pump specifically designed for high head applications. It can achieve flow rates up to 460m³h, total heads of 124m with solids handling of 38mm. Excellent suction performance as well as class leading fuel consumption from the latest CAT C6.6 diesel engine makes the H150 ideal for both contractors and hirers. Incorporating Selprime, Selwood’s unique environmentally friendly auto self priming system, and mechanical shaft sealing for leak free running, the H150 shares the same robust construction, reliability and ease of operation as the world renowned Seltorque solids handling range of pumps.
Selwood’s existing manufacturing facility at Chandler’s Ford in the UK has benefited from an improvement programme designed to increase efficiency and capacity. Smart procurement and greater stock holding will allow for standard products to benefit from shorter lead times which are increasingly required in this modern, fast moving marketplace. The pump units produced at the factory range from 50mm to 300mm discharge diameter and can be fitted with a variety of different drives including diesel engines and electric motors to meet individual customer requirements.
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The Selwood Seltorque S200 pump has also been redesigned to provide a higher flow option to the unique and world renowned S150. The S200 benefits from solids handling of 100mm, flows up to 540m³/h and delivery heads up to 18.5m, resulting in unequalled performance in effluent disposal and slurry handling applications. Even one of Selwood’s oldest pumps, the PD100, has found a new lease of life pumping polymer for ground stabilisation applications.
As well as developing new pump models Selwood has a strategic pump development programme to continually improve its existing product range. The introduction of the Seltorque
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URS
AMP6
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Sustainable Abstraction for AMP6
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As we move towards AMP6, sustainable abstraction is once again high on the agenda. The concept is not new –with the adoption of the Habitats Directive in 1992 and the development of the Environment Agency’s Restoring Sustainable Abstraction (RSA) Programme, the Environment Agency and water companies have been assessing the impact of abstraction on the environment. The Environment Agency’s National Environment Programme (NEP) contains environmental improvement schemes that ensure water companies meet European, national and local priority targets related to water. In its forward programme 2012-13 to 2014-15, Ofwat is aiming to work with the Environment Agency and Defra to improve water resources management planning guidelines and to enable companies to identify solutions that are in the best interests of the environment as well as customers. The Abstraction Incentive Mechanism (AIM) will encourage the efficient use of water resources, whilst improving environmental outcomes. By taking water from catchments where there is a surplus, those that are over-abstracted will be protected from further stress. The AIM will seek to disincentivise environmentally damaging abstraction. Some abstraction licences could be harming nature conservation sites or the ecological health of catchments, and action is needed to change the allocation of water at these sites. Only by understanding the needs of the environment, the water companies, and the commercial world will practical solutions
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be achieved. Through its work with UK water companies and the Environment Agency, URS has been providing such solutions; balancing the competing demands and looking at the possible future effects of climate change. Water resource availability is currently assessed through the Catchment Abstraction Management Strategy (CAMS) process. Whilst the rights of existing abstractors are protected, where damage to the environment is shown, licences can be revoked or modified, generally with compensation to cover loss. The Government’s Water White Paper, Water for Life, set out in December 2011, policies for a sustainable water sector in England. Both Ofwat and Defra recognise the need for the water sector to remain “an attractive prospect for long-term investors if the cost of capital and the cost to customers are to remain affordable”. The Water Framework Directive (WFD) is a major driver for action. It continues to drive forward changes that will limit the environmental damage caused by unsustainable abstraction. The WFD requires Member States to aim to achieve good overall status in surface water bodies and good groundwater quantitative status by 2015, to prevent water bodies deteriorating in status (subject to certain specific exemptions). In 2009, the first cycle of River Basin Management Plans (RBMP) started the process of assessing the status of water bodies, and developed measures to maintain current and future good status. The next round of RBMPs will focus on the cost and feasibility of delivering such measures. The Environment
Agency has powers to protect, conserve, and enhance the environment, and in some cases is required to act where abstractions have a detrimental impact on the environment. Several WFD led schemes have already been delivered in AMP5, and the NEP for PR14 will contain many more. WFD assessments are now needed to support planning applications, where there is the potential to impact on WFD objectives. URS is developing the approach to WFD assessment for several major infrastructure schemes in collaboration with the Environment Agency. The WFD assessment process continues to encourage groundwater, surface water, ecological specialists and economists to work together. A considerable body of environmental and water resources information and knowledge is building up. This will prove invaluable for future work under AMP6 as the Environment Agency, the water companies, and their consultants continue to strive for sustainable abstraction.
Integrated Solutions for the Water Sector. URS offers multidisciplinary professional services in all aspects of water management. Our activities encompass the complete water cycle across a broad spectrum of industries. An integrated approach provides our clients with tailored and holistic services that respond to the growing importance of global environmental issues. URS provides a start-to-completion service. Our projects range in scale from local schemes, such as flood risk assessments or individual treatment works, through to planning for large scale multimillion pound developments and preparation of long term water strategies.
URSGLOBAL.COM
Why partnership and early starts may pave the way to a smoother AMP transition Tony Hoyle, General Sales Manager UK & Ireland for ABB’s Measurement Products business, explains how greater partnership between water companies, their contractors and suppliers may offer a way through the growing problems presented by the AMP cycle.
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This has had a knock-on impact on both contractors and suppliers.
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In these relationships, the water company, the contractor and / or the supplier agree to work
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As there is often substantial up-front work needed to assess the viability of major projects, water companies are concerned about investing too much time, effort and money without knowing whether at least some of it is likely to be offset by the Final Determination funding from Ofwat. Consequently, such projects have tended to be put on hold until the Final Determination funding is known, with work typically only getting underway in the second year of the AMP period.
In such an inter-linked environment, finding a solution that suits everyone is never going to be easy.
Chart 1.A: Total industry net capital investment 1990-91 to 2014-15
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This problem has been compounded by the mutually dependent relationship between the water companies, contractors and suppliers involved in the AMP process.
embraced, there is an expectation that payback should take place both quickly and within the 1 16/10/2012 AMP timeframe, which may not suit certain 15:35 products. As a result, the progress of innovation has been hamstrung, with many suppliers criticising water companies for being followers rather than early adopters.
However, one potentially workable idea advanced by the HM Treasury is to encourage greater take-up of partnership frameworks.
For suppliers, particularly those that rely heavily on work from the AMP process, there has been little incentive to commit to new product developments that may not be picked up by the water companies. Where such innovation is
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An unintended side-effect, however, has been the programme’s bell-shaped pattern of investment, where activity in year one slowly ramps up, peaks in years two and three and then falls away as the cycle ends. This ‘cramming’ of investment has created a ‘stop-start’ cycle, where investment is effectively crammed into a block of activity rather than being distributed smoothly throughout the course of an AMP period.
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Originally created to bring the UK’s water infrastructure into line with European directives, the AMP programme has seen billions of pounds invested in projects that have transformed water quality, distribution and disposal in the UK.
For contractors, the winding down of work in one period and the delay in starting the AMP investment next means either making staffdiagram.pdf redundant or redeploying them to other projects. British Water estimates that around 20-40,000 people are directly affected in this way in the transition between AMP periods. When projects do get underway, skilled staff have either been lost or allocated to other projects or sectors, or else command a premium, thereby raising project overhead costs.
Total capital investment (£billion)
The release of the HM Treasury report ‘Smoothing investment cycles in the water sector’ in July gives hope that the negative impact of the AMP cycle on the UK water industry and its supply chain may soon be addressed.
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Actual capital maintenance
Actual capital enhancements
Forecast capital maintenance
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A major benefit of such partnerships is their extended duration. Typically built on a five year fixed period with an additional five year negotiated extension, partnerships can offer a more stable, secure and long-term working relationship across AMP periods.
Another sure way of helping smooth the cycle is for OFWAT to ensure that all of the water companies have early start projects in their Asset Management Plans for year one. Under the early start approach, design work needs to be completed in the prior AMP period, so that projects are ready to get underway in year one of the following period. As well as helping contractors and suppliers, this approach also helps water consultants and design companies in years four and five. Some early start programmes were attempted in earlier AMPs, but were only successfully carried out by a handful of water companies.
Summary The AMP programme has undoubtedly already helped the UK to create a water infrastructure that is fit for the future. What is clear though is that it cannot carry on in its current form if its full potential is to be realised. Whatever happens, for the AMP approach to continue to be effective, there needs to be greater co-operation between all parties, including Ofwat, to enable greater certainty over the amount of funding available at a much earlier stage.
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together throughout all stages of a project, from initial risk assessment through to delivery and implementation. As all parties are involved together, there is a mutual interest in ensuring the best possible outcome in the most efficient way and at the best price.
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ABB
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THE SOLUTION
clean water
waste water
steel
concrete
civil engineering
STONBURY 28 YEARS AS MARKET LEADERS IN THE REFURBISHMENT OF WATER RETAINING STRUCTURES & ASSOCIATED ASSETS RESERVOIR & WATER TOWER REFURBISHMENT - STEEL & CONCRETE TANK REFURBISHMENT/REPLACEMENT SEWAGE TREATMENT WORKS REFURBISHMENT - PIPE BRIDGE & AQUEDUCT REFURBISHMENT SPECIALIST COATINGS - WATERPROOFING - CORROSION PROTECTION - INSPECTION - CLEAN & CHLORINATION CIVIL ENGINEERING - SECURITY WORKS INC LPC4 ACCESS COVERS - ACCESS LADDERS, HANDRAILS & WALKWAYS Northern Office: Unit 4, Phoenix Enterprise Park, Grovehill Road, Beverley, E.Yorkshire, HU17 0JG t 01482 881198 e enquiries@stonbury.co.uk Southern Office: 187c High Street, Cranfield, Bedfordshire, MK43 0JB t 01234 750924 e enquiries@stonbury.co.uk
www.stonbury.com
STONBURY
Service Reservoir Bacti-Failure Forum Stonbury Limited, specialist contractors to the water industry, recently hosted a Water Tower & Service Reservoir Bacti-Failure Forum for their water industry framework clients, to openly discuss and share opinion on best practice with regards to combating bacti-failures within Service Reservoir and Water Tower structures.
As the common denominator, holding service reservoir refurbishment contracts with 8 of the UK’s largest water companies, along side working with all the other water companies, stonbury were delighted to send out invitations to their framework clients to gauge the response.
James Stonor, MD of the Stonbury Group welcomed all delegates then detailed the agenda for the day, offering forward topics for group and open discussion. Topics included sampling arrangements, inspection frequency, formats and flood testing, cleaning and chlorination techniques, frequency, asset scoring, refurbishment specifications and product cure times.
An excellent opening presentation from Keith Smith, Principle Inspector from the DWI, got things off to a splendid start and a very interesting presentation from Steve Russell, Senior Consultant with WRC kept the ball rolling. The forum ended at 4pm with many topics still under discussion and the conclusion that the day had been extremely worthwhile, encouraging communication between water providers. For more information on possible future events please contact us quoting: ‘Forum’ at enquiries@stonbury.co.uk.
“The event really was a fantastic demonstration of water companies sharing their knowledge and experience for the benefit of all. Feedback following the event was overwhelming and we were very pleased it had been such a success” James Stonor MD
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It was agreed that if this could be rolled out across the country, great benefit would be gained by all those who may be interested in taking part.
As a result, forty eight delegates representing Northumbrian Water, Yorkshire Water, Welsh Water, Anglian Water, South Staffs Water Company, Affinity Water (formally Veolia) Severn Trent Water, United Utilities, South East Water and Portsmouth Water all attended what proved to be a very successful day at the splendid ‘Breadsall Priory’ Marriott Hotel near Derby.
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Northumbrian Water had put forward the idea that Stonbury could try and bring together their clients knowledge and experience to help address these issues for everyones benefits by comparing practises and ideas not normally shared.
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FASTFLOW
More work in the pipeline for Fastflow Fastflow Pipeline Services has been awarded a £3 million contract to upgrade key sections of Scottish Water’s clean water network. The works comprise two schemes in the South West of Scotland - one in Greenock, Inverclyde and the other in Ashgrove, Ayrshire. Having commenced at the end of October, the projects will be completed in the summer of next year and have secured the employment for 25 operatives.
As part of this drive, Fastflow was an exhibitor at the recent No Dig Live event at Coventry, where its award winning trunk mains cleaning offer was on show. The European-patented system is capable of operating over distances of up to a kilometre - resulting in fewer excavations and pipe interventions – saving substantial amounts of time and cost while improving safety and reducing environmental impact. Cutting edge tools provide high quality images from deep within the pipeline, enabling the specially trained technicians to carry out a thorough assessment of the condition of the main and develop a detailed cleaning and repair plan. The innovative, remote controlled spray head uses only a fraction of the water required by more traditional flushing methods, making it much more environmentally sustainable. Capable of cleaning 1.2 metres of pipe per minute, it also scores very high water purity values in a single pass.
The Fastflow trunk mains cleaning system – spray chlorination - in operation.
Once cleaning has been carried out, the world’s largest spray chlorination unit saves even more water as the main requires only a single, rather than double fill, to complete the process.
Fastflow also used the show to re-launch its gas network operations – Fastflow Energy Services – which is now headed up by former Great Britain Rugby League star, Tony Cottrell.
After manning the stand at No Dig Live, Fastflow Business Development Director, Keith Macaulay, commented: “There was a lot of interest in our system and we picked up some encouraging leads.”
Within weeks of the Leigh Centurians prop joining FES, it was selected as an approved partner by the National Grid for gas diversion and installation works.
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“We have spent a lot of time and money improving services in recent months, making our offer more environmentally friendly and cost effective for the customer. We are now starting to see the fruits of our labour as we seek to extend operations around the UK.”
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Working in partnership with George Leslie, Fastflow is helping to deliver Scottish Water’s network rehabilitation programme to further improve water quality. Said owner and Chief Executive Officer, Neil Armstrong: “We are pleased to have again been selected to work with Scottish Water on its network improvement initiative.
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VEOLIA WATER ORGANICS RECYCLING
Sustainable solutions for our environment - organic waste streams A subsidiary of Veolia Water, Organics Recycling has been using its knowledge of soil nutrients and waste management to offer sustainable solutions to not only the water industry by recycling sewage sludge to land, but to a much more diverse range of organic waste producers. Since becoming part of the Veolia Water group five years ago, the company now handles organic waste streams from a number of different waste processes such as food, dairy and brewery, and it has also widened its scope to incorporate energy recovery and anaerobic digestion from organic waste, as well as its core base of recycling waste to land and agriculture.
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Diversifying
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A good example of how the market and Veolia Water Organics Recycling is evolving is through the contract that it has with a large Whisky distiller to treat by-products from the distilling process, such as wet grain, pot ale and draff. The process has three inputs that go into the production of Whisky: barley, water and yeast. Once processed there are a number of by-products that can either be burned in a boiler to create energy, digested to create gas through anaerobic digestion, or the nutrient value can be returned to land. Conventional recycling of organic waste from the distilling process involves drying out the by-product and using it as animal feed – and this is still very much a common practice. Because this is an energy intensive process, Veolia Water Organics Recycling has developed a system that reduces the energy intensity, which in turn reduces the distillers carbon footprint. The process also means Veolia can take the by-products and create an organic soil conditioner, as well as biomass energy fuel.
Tailored solutions When deciding on a treatment process for new waste streams that require processing, Veolia Water Organics Recycling tailors its solutions to ensure environmental needs are met and that outputs can be used locally, for example as a soil nutrient for local agriculture. The company works on the basis of looking to provide a client with more than one solution for organic waste recycling. For example, when recycling alcoholic dairy biosolid from a Belfast-based manufacturing plant in Northern Ireland, when it comes to recycling to land, there are huge limitations that apply. During the closed period (15 October to 15 February), recycling to land is not permitted. So the company developed a cost-effective, all-encompassing solution that ensures there will always be an outlet for the recycled materials. It uses local contractors to transport them to a local composter, farmer or (during
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the closed period) storage facilities. The company finds the land and uses its SUIVRA software to ensure 100% regulatory compliance – a bespoke monitoring tool, which tracks material from the start to end of its recycling process, underpinning the company’s commitment to high quality service, value and responsibility. Changes to perceptions in the organics recycling sector in recent years are likely to change the way organics recyclers operate, and in particular in the way clients view their waste. It’s no longer a case of looking at organic waste as something to dispose of; it is now looked upon as something from which further value can be created. Veolia Water Organics Recycling works with a range of clients to help get the best value from organic waste by providing solutions that will create better results together. www.veoliawaterorganicsercycling.co.uk Contact Ben Goad on 07768 044698
WPL
WPL has developed the ‘AN-SAF’, an innovative technology for enhanced nitrate removal WPL is the first company to have supplied such a technology as a capital project solution to a UK Water Company. With ever tightening Environment Agency consent standards water companies continue to upgrade their works to meet them. The innovative WPL Anoxic AN-SAF module is the first system to incorporate de-nitrification in a SAF (Submerged Aerated Filter). Andrew Baird, WPL’s Technical Manager, says, “De-nitrification in a SAF had long been considered to be biochemically unworkable due to a constant air demand required to maintain scour of the media pack and to prevent sedimentation within the treatment zone. We have successfully overcome these technical barriers with innovative process control automation and operational experience gained from managing pilot trials for a 12 month period within a research and development program.” WPL supplied the works with two steel above ground tanks providing aerobic/anoxic treatment of influent wastewater from existing mineral filters at the works, with a 5800 population equivalent. The AN-SAF’s were designed by WPL to meet effluent discharge standards (95%ile) of ammoniacal nitrogen at 5.0mg/L and total inorganic nitrogen at 35mg/L (annual average). The wastewater flows through the existing plant’s inlet works, primary treatment chamber and trickling filters. It then enters one of two Anoxic AN-SAFs via a flow-splitting chamber. Each AN-SAF comprises five cells: the first three of which have been assigned as aerobic and the remaining two as anoxic. The aerobic sections are assigned for the process function of nitrification and are therefore continually aerated for carbonaceous and nitrifying degrading of the sewage.
Flow then continues into the anoxic sections, where it is continuously forced to change direction across the profile of the tank. This allows for maximum contact with the submerged media preventing excessive sedimentation of particulate solids and facilitates mixing without turbulence that would entrain air. There is flexibility in the design to increase the amount of aerobic cells to four or five and subsequently decrease the number of anoxic cells to one or zero. WPL not only designs, manufactures and commissions its wastewater treatment solutions, but also provides maintenance as well, offering a comprehensive package if required. For more information visit www.wpl.co.uk.
The WPL HiPAF SAF
For efficient, biological treatment
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If reduced wholelife costs are a priority as well as effective wastewater treatment, speak to WPL’s technical sales team. Our energy efficient blowers maintain process performance whilst saving on operational costs. With low visual impact and small footprint this makes the HiPAF the preferred choice for a compact, flexible wastewater treatment solution.
BOD and AMMONIA REMOVAL
WPL, for wastewater treatment that works. Contact Technical Sales 023 9224 2600
enquiries@wpl.co.uk
www.wpl.co.uk
Protecting the environment by delivering reliable wastewater solutions.
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Plus additional processes can be provided for DENITRIFICATION and PHOSPHATE REMOVAL.
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